4 Under-The-Radar Housing Stocks

Includes: LEDR, MOVE, RATE, Z
by: Stone Fox Capital

The housing market has been depressed for over 5 years now. During that time period several smaller, housing-related internet stocks have gone public to mostly limited fanfare. These stocks could provide some under-the-radar opportunities as the housing market rebounds in the coming years.

The market is well aware of the homebuilding stocks that have soared this year such as KB Homes (KBH) or the major home improvement retailers like Home Depot (HD) and Lowe's (LOW). What about the internet-related housing stocks such as Bankrate (RATE), Market Leader (NASDAQ:LEDR), Move (MOVE), or Zillow (Z)?

The market is very infatuated with the social media stocks such as the upcoming Facebook IPO or Zynga (ZNGA). Instead of focusing on these stocks, why not buy into a sector of the internet that isn't hot?

Analysts generally estimate robust growth rates, but you'll hardly hear about these stocks. I'd imagine that the average investor just ignores them. What will the growth rates be like as the real estate market comes back in the next few years and these new internet services become more mainstream? Remember most of them were just in their infancy when the market burst back in 2006.

Bankrate: This company is a leading aggregator and distributor of personal finance content on the internet. Its website network includes Bankrate.com, CreditCards.com, and Interest.com, amongst others. It makes money from display and hyperlink advertising along with lead generation. Besides display advertising, which only grew 6% over 2010, the business is booming, reporting 47% revenue growth to $114M.

Bankrate is the largest company in the group. Analysts expecting 31% revenue growth in 2012 to $543M though management guided to mid-20% range in the Q4'11 earnings report. The company has a forward PE (2012) of 29 and trades with a market cap of $2.4B.

Clearly the stock isn't cheap, but revenue is growing fast in spite of a weak real estate and financial market. Growth could accelerate going into 2013 if housing does bottom this year. A stock worth watching on dips.

Market Leader: This company is an innovator in online marketing and technology solutions for real estate professionals. It recently reported that its software use had surpassed 100,000 users within six months after hitting the 50,000 milestone. It also runs realestate.com, which gives its customers access to millions of future home buyers and sellers.

Analysts expect Market Leader to grow by nearly 50% in 2012, though revenue will only hit $50M. The company is also still losing money, so this stock is highly speculative. With a market cap below $100M and only one analyst following the stock, this is definitely one for a watch list to get a better feeling for the company and its execution ability.

Earnings will be released on February 29, so interested investors should catch the conference call first.

Move: This company is a leading online real estate provider with Realtor.com. Unlike the other companies in this sector, Move isn't providing a new groundbreaking technology, hence revenue didn't grow in 2011. The company already has a dominant position in the market, making it much more reliant on a return of growth in the sector.

The company did make operational improvements in 2011, reporting higher margins over 2010. In 2012, Move expects modest growth, suggesting a bottoming process in the business. Further, analysts only expect modest revenue growth in 2013, though earnings are expected to continue popping with better operational efficiency.

Zillow: This company is the leading real estate information marketplace, providing vital information about home values or 'Zestimates' via its Zillow.com website.

Analysts expect over 50% revenue growth in 2012. The 5 year earnings growth rate is over 54%, suggesting that Zillow has years of growth ahead. With a market cap of nearly $900M and estimated 2012 revenue of just under $100M, investors clearly have to pay up for that growth.

The stock has been virtually flat since coming public last July. Not surprising considering the valuation multiples. Definitely another stock worth following if it ever declines from these levels. As investors start looking forward to 2013 estimates, any drop in the market might provide a good buying opportunity. If this company can grow at 50% in this weak real estate market, just imagine when it becomes more robust.

Are these stocks completely unknown? Probably not. But does the typical investor see Zillow as a 50% grower? No, and that's what makes following these stocks potentially profitable in 2012. With limited analyst coverage and the possibility of further declines in the real estate market, investors need to beware of the potential downside risk.

Disclosure: I am long HD, LOW.

Disclaimer: Please consult your financial advisor before making any investment decisions. This article should not be considered as personal advice.